Service Supply Relationships Learning Objectives Contrast the supply chain for physical goods with the customer-supplier duality of services. Discuss the challenge of managing service supply relationships. Classify business services based on the focus of the service and its importance to the outsourcing organization. Discuss the managerial considerations to be addressed in outsourcing services. Discuss the challenges of delivering services in the field. Prepare a delivery route using the Clarke-Wright algorithm. Supply Chain for Physical Goods Suppliers Recycling/Remanufacturing Process and Product Design Manufacturing Material transfer Distribution Retailing Information transfer Customer Customer Service Customer-Supplier Duality in Service Supply Relationships (Hubs) Supplier Service Design Material transfer Service Provider Information transfer Customer Single-Level Bidirectional Service Supply Relationship Service Category Customer -Supplier >Input Output> Service Provider Minds Student >Mind Knowledge> Professor Bodies Patient >Tooth Filling> Dentist Belongings Investor >Money Interest> Bank Information Client >Documents 1040> Tax Preparer Two-Level Bidirectional Service Supply Relationship Service Category Customer -Supplier >Input Output> Service Provider >Input Output> Provider’s Supplier Minds Patient >Disturbed Treated> Therapist >Prescription Drugs> Pharmacy Bodies Patient >Blood Diagnosis> Physician >Sample Test Result> Lab Belongings Driver >Car Repaired> Garage >Engine Rebuilt> Machine Shop Information Home Buyer >Property Loan> Mortgage Company >Location Clear Title> Title Search Sources of Value in Service Supply Relationships Bi-directional Optimization Managing Productive Capacity - Transfer: make knowledge available (e.g. web based FAQ database) - Replacement: substitute technology for server (e.g. digital blood pressure device) - Embellishment: enable self-service by teaching (e.g. change surgical dressing) Management of Perishability Impact of Service Supply Relationships Element or Link Channel Structure Service Recipient Channel Integration Before Functional silos Passive Vertical (own the channel to integrate) Flow of Service Flow of Information (upstream) Available waiting for demand Pull: manual reporting of demand data results in delayed management response. Little or no knowledge of resource deployment Predominantly in-house; locally optimized for efficiency Flow of Information (downstream) Business Processes Demand Management Limited to use of appointments and reservations. After Process orientation Active as a co-producer Virtual (IT and other mechanism permit integration without ownership) Activated upon demand Push: high level of connectivity and transparency with fast or instantaneous access to most recent demand data. Real-time tracking and dispatching In-house for key processes, others out-sourced for flexibility; integrated and synchronized to match supply with demand Proactive involving customer in scheduling to achieve bidirectional optimization Impact of Service Supply Relationships Element or Link Capacity Management Facilitating Goods Service Delivery Routing and scheduling New Service Design Pricing International Operations Before Limited to use of part-time employees After Creative use of cross-trained employees, outsourcing, and customer self-service. High; in anticipation of Lower; owing to process demand transparency Inflexible; standardized and Flexible; personable with impersonal customization possible. Static; fixed daily schedules Dynamic; based on system connectivity and process visibility Marketing initiatives based on Virtual value chain design with firm's perception of customer customer data base information needs driving new services Fixed Variable; yield management promotes off-peak demand and avoid idle capacity Focus on domestic market Global reach with Internet Outsourcing Services Benefits - allows the firm to focus on its core competence - service is cheaper to outsource than perform inhouse - provides access to latest technology - leverage benefits of supplier economy of scale Risks - loss of direct control of quality - jeopardizes employee loyalty - exposure to data security and customer privacy - dependence on one supplier compromises future negotiation leverage - additional coordination expense and delays - atrophy of in-house capability to perform service Outsourcing Process Need Identification Problem Definition "Do-versus-Buy" Analysis Involve Interested Parties Specification Development Information Search Vendor Selection References Personal Contact Recommendations Trade Directory Experience Reputation References Performance Evaluation Identify Evaluator Quality of Work Communication Meet Deadlines Flexibility Dependability Cost Location Size Taxonomy for Outsourcing Business Services Importance of Service Property Focus of People Service Process Low Facility Support: -Laundry -Janitorial -Waste disposal Employee Support: -Food service -Plant security -Temporary personnel Facilitator: -Bookkeeping -Travel booking -Packaged software High Equipment Support: -Repairs -Maintenance -Product testing Employee Development: -Training -Education -Medical care Professional: -Advertising -Public relations -Legal Outsourcing Considerations Focus on Property Facility Support Service • Low cost • Identify responsible party to evaluate performance • Precise specifications can be written Equipment Support Service • Experience and reputation of vendor • Availability of vendor for emergency response • Designate person to make service call and to check that service is satisfactory Outsourcing Considerations Focus on People Employee Support Service • Contact vendor clients for references • Specifications prepared with end user input • Evaluate performance on a periodic basis Employee Development Service • Experience with particular industry important • Involve high levels of management in vendor identification and selection • Contact vendor clients for references • Use employees to evaluate vendor performance Outsourcing Considerations Focus on Process Facilitator Service • Knowledge of alternate vendors important • Involve end user in vendor identification • References or third party evaluations useful • Have user write detailed specifications Professional Service • Involve high level management in vendor identification and selection • Reputation and experience very important • Performance evaluation by top management Topics for Discussion What are some possible disadvantages associated with the product postponement strategy? Discuss the similarities and differences in the product postponement strategy used by Hewlett-Packard and Taco Bell? Discuss the implication of service outsourcing on employees, stockholders, customers, and host country economy when a firm outsources a call center overseas. Interactive Exercise The class divides into small groups and members come up with examples of multilevel bidirectional service relationships (i.e, service supplier relationships with three or more levels). Be prepared to argue why such service relationships are so rare. Peapod – Smart Shopping for Busy People 1. 2. 3. 4. Where are opportunities for bidirectional optimization at Peapod? How can Peapod manage service perishability? How can Peapod manage productive capacity? Suggest reasons why Peapod has not yet become profitable.